or interest payments or delinquencies in tax payments, retaining the present requirement for a reduction in interest charges paid by borrowers.

SECTION 19

This section is a committee amendment which limits the incurring of obligations by the Federal Farm Mortgage Corporation to those coming within estimates submitted to and approved by the Director of the Budget.

SECTIONS 20, 21, AND 22

These sections are committee amendments which amend various provisions of the Federal Farm Loan Act, as amended, to permit the Federal land banks to make loans to farming corporations, under certain limitations. These provisions are comparable to those contained in the bill (S. 55) introduced by Senator Carey.

SECTION 23

This section contains the usual constitutional saving clause; and expressly reserves to Congress the right to alter, amend, or repeal the

act.

O

JANUARY 21 (calendar day, JANUARY 29), 1935.--Ordered to be printed

Mr. HARRISON, from the Committee on Finance, submitted the

following

REPORT

[To accompany H. R. 4304]

The Committee on Finance, to whom was referred the bill (H. R. 4304) to amend the Second Liberty Bond Act, as amended, and for other purposes, having considered the same, report thereon favorably without amendment and recommend that the bill do pass.

GENERAL STATEMENT

The purposes of the proposed bill are to permit more flexible and economical Government financing, to authorize the issue of obligations in amounts necessary to meet such expenditures as may be required and to conduct refunding operations, to authorize the issue of a new type of Government bonds, and to make bonds the interest and principal of which are guaranteed by the United States acceptable as security in lieu of surety bonds.

The bill will have no effect on the total of the debt outstanding, as this amount will depend upon expenditures made in pursuance of law. It does permit the Secretary of the Treasury to issue securities best suited, at the time, to meet the conditions of the market and the needs of the Government within the limits of the bill. There are outstanding some $5,000,000,000 Liberty issues bearing high rates of interest which may be called and refunded. In addition, there will be a need for additional sums for the Government and for payment of short-dated obligations.

The Secretary of the Treasury recommends the early enactment of this bill. He has pointed out to your committee that the proposed amendments are essential to enable the Treasury to continue its efforts to finance the needs of the Government in the most economical manner possible. As the authority to issue bonds has been exhausted except for about $2,500,000,000 and the authority to issue notes has been exhausted except for about $400,000,000, conversion and refunding operations together with any new financing might be delayed if action upon the bill were long postponed.

EXPLANATION OF THE BILL

Under the present law, bonds in an aggregate amount of $28,000,000,000 may be issued under section 1 of the Second Liberty Bond Act, as amended. There have been issued $25,450,487,115 of such bonds, of which $11,975,539,465 have been retired. Since, under the present law, bonds once retired may not be replaced by new issues. without reducing the remaining amount which may be issued, the amount of bonds now issuable is $2,549,512,885. Section 1 of the bill proposes to authorize not in excess of $25,000,000,000 of bonds. to be oustanding at one time. The effect of this provision is to establish a maximum based upon the amount of bonds outstanding, rather than upon the aggregate amount issued, thus applying to bonds the principle which has been applicable to all other securities of the Government since 1917. Since there are now outstanding $13,474,947,650 of bonds under the Second Liberty Bond Act, the additional amount of bonds authorized to be outstanding under the proposed amendment, would, at the present time, be $11,525,052,350. Section 1 also amends the first paragraph of section 1 of the Second Liberty Bond Act so as to incorporate provisions of law, heretofore enacted, which were in substance amendments of the paragraph. The rewritten section also omits obsolete provisions of the paragraph. Sections 2, 3, 4, and 5 apply to short-term obligations principles somewhat similar to the purposes outlined in connection with section 1. These sections authorize the issuance of notes, certificates, and Treasury bills in an amount which may be outstanding at any one time not in excess of $20,000,000,000. This amount is the same as the amount of all such securities which may be outstanding under the present law. The effect of the proposed sections is to consolidate the aggregate of $10,000,000,000 of notes and the aggregate of $10,000,000,000 of certificates and Treasury bills so that the new $20,000,000,000 limitation applies to both classes. The amount of each class which may be outstanding will be determined by the needs of the Government and the maturities most suitable at the time of issue. At the present time there are outstanding $9,586,377,400 in notes and $2,112,468,000 in certificates and Treasury bills. Under the proposed amendment no increase in total amounts of both classes is authorized, but each class may be increased to an amount which, when added to the amount of the other, does not exceed the maximum for both. Other amendments to existing law made by these sections incorporate previous legislation amending the sections of the Second Liberty Bond Act, as amended, referred to.

Section 6 adds a new section to the Second Liberty Bond Act, as amended, which authorizes the issuance of United States savings bonds. The amount of these bonds outstanding is included for the purposes of applying the $25,000,000,000 limitation on all bonds provided in section 1 of the bill. These United States savings bonds are designed to meet the needs of certain individuals who desire to put their savings into such a bond. As some investors will wish to keep their interest as well as their principal invested and will not want to have the inconvenience of cashing coupons and reinvesting the proceeds, these bonds are authorized to be issued on a discount basis. The bonds will thus increase in value annually until maturity. They are to mature not less than 10 nor more than 20 years from the date as of which the bond is issued. The Secretary of the Treasury is authorized to make provisions for the redemption of any or all of these bonds before maturity and the Secretary stated in committee that it was his intention to have these bonds redeemable at the option of the holders before maturity at values increasing at regular intervals to maturity. The issue price of the savings bonds and the terms upon which they may be redeemed prior to maturity are required to be such as to afford an investment yield not in excess of 3 percent per annum, compounded semiannually.

The section makes it unlawful for any one person at any one time to hold savings bonds issued during any one calendar year in an aggregate amount exceeding $10,000 (maturity value). The provisions of section 7 of the Second Liberty Bond Act, as amended, which relate to the exemptions from taxation as to principal and interest of bonds issued under authority of section 1 of that act, as amended, are made to apply as well to the United States savings bonds, and it is provided that for the purposes of determining taxes and tax exemptions the increment in value represented by the difference between the price paid and the redemption value received (whether at or before maturity) should for such purpose be considered as interest. The provisions of existing law carrying permanent appropriations for the expenses of loans are extended to the expenses of savings bonds. The authority to issue bonds upon the surrender of Postal-Savings deposits as authorized by section 10 of the act approved June 25, 1910, is withdrawn as to the original issue of such bonds after July 1, 1935. As a substitute therefor, provision is made for the withdrawal of Postal-Savings deposits for the purpose of acquiring savnigs bonds, and further provision is made for the sale of the new bonds through the Postal Service. The committee amendments to this section are clerical.

Section 7 amends the provision of the Revenue Act of 1926 which authorizes the posting of Government bonds as security in lieu of surety bonds, cash, or other security so as to authorize the acceptance of all public-debt obligations of the United States, and bonds, notes, and other obligations which are unconditionally guaranteed as to both interest and principal by the United States. Thus obligations such as those of the Home Owners' Loan Corporation and the Federal Farm Mortgage Corporation, which are so guaranteed, are made eligible. The amendment also permits the Secretary of the Treasury to limit, in certain cases, the effect of the section to the acceptance of obligations maturing more than 1 year after their deposit so that frequent substitutions of short-term securities may be avoided.